Bye Bye US Dollar

AS MORE AND MORE CHINESE SUPPLIERS ARE FED UP WITH EXCHANGE RATE FLUCTUATIONS, THE EURO MIGHT BECOME THE COUNTRY‘S NEXT TRADING CURRENCY.

 

Despite uncertainty in international capital markets, the Chinese currency Renminbi (RMB) has strongly appreciated in value against the US Dollar (USD) since China introduced its exchange rate reform in July 2005 (see chart). The more than 15 % increase in value and expected future volatility has strong repercussions for many European companies buying from China.

 

 

Chinese suppliers from a wide range of industries such as car spare parts, toys, textiles as well as gifts and home products have recently changed from quoting in USD to Euro (EUR). Many of the 700,000 Chinese suppliers listed on Alibaba.com, now quote in EUR, British pounds, Australian Dollar or RMB when receiving enquiries from companies outside the United States. As there is often a time delay of a month or more between signing contracts and settling payments, Chinese suppliers fear for the true value of their prices that have been quoted in USD. The fluctuations in the USD/RMB exchange rate have reduced actual amounts received by sellers to such a dramatic low that they refuse to continue accepting payments in the once internationally preferred trading currency, the USD. Indications that the era of the USD is coming to an end solidify as even large companies such as Cosco, a listed Chinese shipbuilding company, have declared to submit future quotations in RMB when exporting. In search for other ways of price stabilisation, some Chinese suppliers have reduced the validity of their quotes from previously 30-60 days down to seven days.

 

As a result, European traders have to readjust their calculations more often than before in order to remain competitive. European companies that are sourcing products via Hong Kong will be affected as well. Up to now, those companies profited from a relatively weak USD when paying out suppliers while receiving strong Euro payments from their customers in Europe. It still remains to be seen whether the impact of this development is large enough to drive more sourcing companies to look into regions outside of China in search for new suppliers.

» Latest News Index
» Subscribe Fiducia Newsletter